Insurance Broker Certification Practice Exam

What structures insurance companies that consist of subscribers collectively known as a Reciprocal Insurance Company?

1. Directors and Officers

2. Board of Trustees

3. Attorney in Fact

4. Chief Underwriter

The correct answer is: Attorney in Fact

A Reciprocal Insurance Company is structured in a unique way where policyholders, referred to as subscribers, pool their resources to provide insurance coverage for one another. This organization is governed by an entity known as the Attorney in Fact. This key role acts as the manager for the reciprocal, handling its operations and making decisions on behalf of the subscribers, while ensuring compliance with insurance regulations. The significance of the Attorney in Fact lies in its authority to bind the reciprocal to contracts and manage the funds and resources contributed by the subscribers. This structure allows for a collective approach to risk, where the success and stability of the organization depend on the collective risk-sharing among the members. Other roles, such as Directors and Officers, Board of Trustees, or Chief Underwriter, might be found in other types of organizations but do not accurately reflect the unique governance model of a Reciprocal Insurance Company. Therefore, understanding the role of the Attorney in Fact is crucial for grasping how these companies operate and the collaborative nature of their insurance provision.